Dollar Drawdown Signals Profit-Taking

The dollar on Wednesday climbed down from its fresh 14-year peak attained on Tuesday and was seen continuing the slide during Asian trading on Thursday.

The dollar drawdown seemed linked to investors moving to book profits following recent gains in the currency. Investor caution ahead of the release of various U.S. economic reports also weighed on the greenback.

The Wall Street Journal Dollar Index that measures the strength of the dollar against 16 rivals was down 0.2% to 93.23 on Wednesday. The dollar mainly lost against the euro and yen.

The U.S. Dollar Index that gauges the strength of the greenback against six major trade partners was last seen down 0.41% at 102.84 on Wednesday, and was moving down 0.06% at 102.98 early Thursday. The index touched a fresh 14-year high of 103.62 on Tuesday after doing the same last week.

The dollar has surged amid expectations of economic prosperity in the U.S. as Trump takes the White House.

Dollar packs gains

The dollar has rallied since U.S. presidential election last month handed victory to billionaire real-estate mogul Donald Trump. Investors have been buying the dollar and investing in U.S. assets amid hope for expanded fiscal spending under Trump administration.

U.S. bond yields have soared since the election, but bond yields in the Eurozone have deteriorated. While yields on the 10-year U.S. government bond has spiked to about 2.556%, yields of similar bonds on Germany, for instance, are languishing near 0.27%. As such, the difference between US and German bond yields is at its largest in more than 25 years.

Besides increasing government spending, Trump proposed to offer U.S. companies a one-off tax holiday to allow them repatriate their offshore cash at a lower tax rate of about 10% instead of the regular rate of nearly 40%. The repatriated cash could be invested by the companies to expand their operations in the country, leading to more employment.

SoftBank to pump $50 billion in U.S. investment

SoftBank, the Japanese owner of U.S. wireless carrier Sprint (S), has pledged to invest about $50 billion in the U.S. and create tens of thousands of new jobs as part of its response to Trump’s call for more investment in the country.

SoftBank is putting up a $100 billion fund that will specifically invest in technology, and the investment pledged for the U.S. will be drawn from that capital pool. Apple is reported in discussion to investment in SoftBank’s technology fund called SoftBank Vision Fund. The iPhone maker could put $1 billion in the fund, possibly drawing from its offshore cash stockpile.

Apple’s contract manufacturer Foxconn is also planning to expand its U.S. operations, which would further result in more jobs.

Trump is also pressing U.S. companies to keep jobs in the country, believing that will eliminate the problem of job shortage, boost people’s incomes and lift consumer purchase power, which should lead to higher corporate profits.

Expected economic reports

The U.S. is reporting revised GDP for 3Q16, data on durable goods orders for last month and weekly jobless claims. The quality of the data will affect the strength of the data. That’s why some investors decided to adjust their dollar portfolio ahead of the reports, causing the greenback to retreat.

Investors have been dumping Eurozone assets as they pursuing investment in US assets, hurting the euro but helping the greenback.

Even if the coming economic data turn out to be downbeat and causes the dollar to plunge, analysts expect the dollar to bounce back because the long-term outlook of the U.S. economy is favorable as a new administration comes to Washington. Several analysts have predicted that the dollar will catch up with euro in 2017.

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